TJC_QP_H2CSQ_Prelims08.TJC

TEMASEK JUNIOR COLLEGE PRELIMINARY EXAMINATION 2008 ECONOMICS: 9732/01 PAPER 1 Wednesday 17 September 2008 1400-1615 Hours READ THESE INSTRUCTIONS FIRST Do not turn over until you are told to do so. Write your name and CG number on all the work you hand in. Write in dark blue or black pen. You may use a soft pencil for any diagrams, graphs or rough working. Do not use staples, paper clips, highlighters, glue or correction fluid. Answer all questions. At the end of the examination, fasten your work for each question separately . Hand in each CSQ separately. The number of marks is given in bracke ts [ ] at the end of each question or part question. This question paper consists of 7 printed pages. [Turn over

TJC Preliminary Examination 2008 2 Answer all questions. Question 1 The Sugar Industry Extract 1: The UK Sugar Market Sugar, a sweet substance is obtained from the juices of various plants. Due to differences in climatic conditions, sugar beet that thrives well in temperate countries is processed into white sugar while sugar cane that proliferates in the tropical areas is processed into raw and white sugar. British Sugar (BSC) is a firm in an enviable position. As the sole processor of the sugar beet grown in the UK, it enjoys a large share of the market for refined white sugar. In addition it receives a guaranteed price from the European Union (EU) for the sugar it produces. Tate and Lyle (T&L) is a company that also processes sugar in the UK, but uses sugar cane, which is imported from countries outside the EU such as Brazil, Australia and the Caribbean countries. Imports of sugar cane are limited by quotas, which restrict the supply and ensure that BSC faces little competition. Neither BSC nor T&L has any incentive to cut prices. BSC has its production quota set by the Common Agriculture Policy (CAP) of the EU while T&L’s ability to increase sales is limited by the sugar cane import quota. The EU subsidises the export of all surplus sugar and this helps to keep prices in the world market low. In the past BSC has more than once been found guilty of abusing its market power. It has twice been fined by the EU, on the first occasion for blocking the entry of another firm into the market, and later for colluding and price fixing. BSC’s profits have exceeded 20% in every year but one since 1994. In 2001, the margin was 21% compared to the overall profit margin of its parent company (Associated British Foods) of just 6%. It has been estimated that if the guaranteed price were reduced by 11%, profits of 10% could still be earned. The reduction would transfer 123m euros from the company to its consumers. Extracted from GCE ‘A’ Level Examination, November 2004 Extract 2: The EU Sugar Regime3 In operation